Nepal Revenue & Tax Collection: Breakdown by Source

The Government of Nepal funds its budget from two broad streams: tax revenue and non-tax revenue, supplemented by foreign grants and borrowing (deficit financing). Tax revenue is by far the larger stream, usually accounting for the great majority of receipts. Non-tax revenue comes from dividends of public enterprises, administrative fees, royalties, fines, interest and similar charges, and is much smaller and more volatile year to year.

Within tax revenue, Nepal relies on a mix of indirect taxes (levied on goods and services regardless of the payer's income) and direct taxes (levied on income and profits). The four workhorses are Value Added Tax (VAT), customs duty, excise duty and income tax. Broadly, indirect taxes have historically supplied roughly 60 percent of total government revenue, which is why analysts describe Nepal's revenue system as consumption-heavy and, in practice, import-based.

Collection is administered by two main federal bodies. The Inland Revenue Department (IRD) administers internal taxes such as income tax, domestic VAT and domestic excise. The Department of Customs (DoC) administers duties and taxes collected at the border on imported goods, including customs duty, plus VAT and excise charged at the import point. The Financial Comptroller General Office (FCGO) consolidates and reports the government's overall revenue and expenditure figures.

Value Added Tax (VAT) is Nepal's single most important tax. It is charged at a standard rate of 13 percent on most goods and services and is collected both on domestic transactions and on imports. In most recent periods VAT alone has contributed close to a third of total revenue, making it the backbone of the system.

Customs duty (import duty) is charged on goods entering the country and is the tax most directly tied to Nepal's large import bill. Because Nepal imports far more than it exports, customs is both a major revenue source in its own right and the collection point for a large volume of VAT and excise on imported goods. Excise duty is levied on specific goods such as vehicles, tobacco, alcohol, and some petroleum and industrial products, and is collected both domestically and at import.

Income tax is the largest direct tax and includes personal income tax, corporate income tax and business profit tax. It tends to move with economic activity, corporate profitability, interest income and capital gains, so it is more sensitive to slowdowns than consumption taxes. Non-tax revenue rounds out the picture, but its share is small and it can swing sharply from year to year depending on public-enterprise dividends and one-off receipts.

The exact split shifts each year, but the ordering is fairly stable. In FY 2021/22 (2078/79 BS), out of total revenue of about Rs 989.62 billion, VAT contributed roughly Rs 314 billion (around a third), customs duty about Rs 241 billion, excise about Rs 155 billion, and income tax about Rs 229 billion (about 24 percent). Within income tax, corporate income tax was about Rs 114 billion. That composition illustrates the point that a large share of revenue is collected from broad-based consumption and import taxes rather than from corporate profits alone.

More recent monthly data confirms the same pattern. In the first two months of FY 2025/26 (2082/83 BS), total revenue and receipts were about Rs 158.7 billion. VAT led with Rs 52.14 billion (about 32.9 percent of the total), followed by customs at about Rs 35.39 billion, income tax at about Rs 33.05 billion and excise duty at about Rs 28.95 billion. Non-tax revenue was only about Rs 7.13 billion, having fallen sharply from the previous year.

On the internal-tax side alone, the IRD reported that for FY 2023/24 (2080/81 BS) income tax contributed about Rs 232 billion, domestic VAT about Rs 112 billion and excise about Rs 95 billion. Read together with border collections, these figures show why VAT-plus-customs is often described as more than half of all tax income: a very large slice of both VAT and excise is actually collected at the customs point on imports.

Nepal runs a large and persistent trade deficit, importing far more than it exports. That structure has a direct fiscal consequence: a substantial portion of total government revenue is collected at the border, in the form of customs duty and of VAT and excise charged on imported goods. When imports rise, revenue tends to rise; when imports are restricted or fall, revenue collection weakens quickly.

This reliance became visible when import curbs and slower trade reduced border collections. Total customs-point revenue (customs duty together with VAT and excise on imports) fell from about Rs 506.42 billion in FY 2078/79 to about Rs 390.7 billion in FY 2079/80, a drop of roughly 22.9 percent, closely tracking a decline in imports over that period. A handful of commodities dominate: in FY 2079/80 the top ten imports alone accounted for about 34.28 percent of total customs revenue, with fuel, gas, gold, vehicles and edible oils among the leading contributors.

The upside of import taxes is that they are relatively easy to collect at fixed checkpoints. The downside is fragility. Because so much revenue depends on the import bill, external shocks, remittance swings, foreign-exchange pressure and import restrictions can all translate quickly into revenue shortfalls, which is a recurring theme in Nepal's fiscal reporting.

Each year's budget sets a revenue target, and in recent years actual collection has repeatedly fallen short of it. FY 2024/25 (2081/82 BS) is a clear example. The government set an ambitious revenue target in the range of about Rs 1.42 to 1.47 trillion, but through most of the year collection ran well behind. By around mid-March 2025, revenue collected stood at roughly half of the annual target.

By late in the fiscal year, the government had collected on the order of Rs 1.027 trillion in revenue (about Rs 1.044 trillion including non-tax sources and foreign grants), which amounted to only around 70 percent of the annual target. With spending running well above income, the year saw a large fiscal gap that had to be met through borrowing.

Shortfalls have several causes. Ambitious targets set at budget time, weaker-than-expected imports (which directly hit border collections), softer corporate profits and interest income (which hit income tax), and volatile non-tax revenue all contribute. Because the revenue base is concentrated and import-linked, a slowdown in trade or investment can pull actual collection several percentage points below target within a single year.

For anyone studying Nepal's public finances, three durable takeaways stand out. First, tax revenue dominates over non-tax revenue, and within tax revenue, indirect taxes (VAT, customs and excise) outweigh direct taxes. Second, VAT is normally the single largest source, and the customs point is where a disproportionate share of all taxes is actually collected because of Nepal's import dependence. Third, actual collection frequently lands below the budgeted target, so the headline 'revenue target' number should not be read as revenue received.

It also helps to distinguish two ways the word 'customs revenue' is used. Sometimes it means customs (import) duty alone; other times it means all revenue collected by the Department of Customs at the border, which additionally includes VAT and excise on imports. The larger border-collection figures reflect the second, broader meaning, so precise comparisons should always check which definition a source is using.

Finally, because a large part of revenue is consumption-based and applied at a flat rate, some economists argue the structure places a relatively heavy burden on ordinary consumers compared with income- and wealth-based taxation. That is a policy debate rather than a settled fact, but it is a recurring point in Nepali commentary on the tax system and a useful angle for reporting.